Magazine

Online Extra: BellSouth's Latin Ambitions

October 19, 2003

Ralph de la Vega, president of BellSouth's (BLS)

Latin America operations, is responsible for its activities in 10 countries -- Argentina, Uruguay, Colombia, Venezuela, Chile, Peru, Ecuador, Panama, Nicaragua, and Guatemala. BellSouth is selling its operation in Southern Brazil. It has more than 11 million subscribers in the region, making it the largest U.S. wireless player there and the second-largest player after Mexico's Am?rica M?vil (AMX).

Although BellSouth's profitability has been whipsawed by Venezuela's devaluation and Argentina's economic meltdown, De la Vega remains bullish on the region and is especially excited about the prospects for taking wireless Internet access to poor, rural regions. He spoke with BusinessWeek Mexico Bureau Chief Geri Smith on Sept. 29. Following are edited excerpts from their conversation:

Q: Latin America's telephone infrastructure has traditionally been lousy, with very low land-line penetration. Is wireless going to replace fixed-line service in Latin America?

A: No. But the real growth is going to be in wireless. And not just [classic] mobile telephones: We were the first ones to launch a fixed-wireless set [in Latin America]. The handset is really low-priced and also has a very low price per minute [of conversation]. The reason we can price it lower is because it's fixed and doesn't move around like a typical mobile phone. So if we have excess capacity in a [rural] town, we can offer service very cheaply, competing with the land-line companies.

We now have more than 400,000 customers that have bought that service in our 10 countries [in Latin America]. In big parts of many countries, there's just no service other than mobile.

Q: How important is data transmission going to be in Latin America, aside from the wealthy elite and businesspeople? After all, computer penetration is very low.

A: For the new mobile handsets (CDMA-1X) we have, the next generation comes with a data port, and if you have a PC, you can hook up to the Internet at 40-60 kilobytes of data per second, which is equivalent to the best dial-up service in the U.S. So we'll be capable of providing not only voice but Internet services to these rural regions that would be prohibitive with fixed lines.

I've been talking to a half-dozen heads of states [around Latin America], explaining how we're trying to [push] technology with low-cost PCs. I was in Asia a couple of weeks ago talking to some Asian manufacturers...to see what it will take to build a low-cost, no-frills PC from scratch with built-in wireless capacity that could [be] provided for these rural areas that don't have fixed-line coverage. From the point of view of a country's development, it's fairly significant. It could change the whole scenario for economic development.

We're looking to see if it makes sense to form an alliance with a head of state who's really interested in increasing the computer penetration in his country. With [today's] technology, we'll have the capability of leveling the playing field in some of these countries.

Q: International telecoms have had a rough time recently in Latin America, what with Argentina's and Venezuela's financial and political problems. BellSouth's profits took a hit. Was it a good idea to focus largely on consumers in this volatile, poor part of the world?

A: We have a nice number of very good postpaid [paying for services after using them] top-tier corporate clients and a very large percentage of prepaid customers. The one thing that's difficult is when currencies devalue once in a while in Latin America. But we're looking at the region as a long-term investment. We've been there since the late 1980s.

The region has its ups and downs, and despite the turmoil in Venezuela, our company did fairly well. We improved profitability, and we're still generating significant revenue. We feel we know how to manage waters that do have a bit of risk because of the political and economic uncertainty. The region has huge potential.

Q: Why did you sell off your Brazilian investment?

A: We wanted to focus on the remaining 10 [countries]. This is getting to be a very competitive business, and we had limited resources. Brazil is a huge country and a great opportunity, but it requires big investment.... Our mission is to be No. 1 or No. 2 in revenue share in each of the countries we operate in. To be No. 1 or No. 2 in Brazil would have required a huge investment.

Q: Why is Latin America an interesting market?

A: Latin America has great growth potential, even when you compare it to other regions. Average [wireless] penetration is around 15% to 20%. Korea has 77% wireless penetration, and they can't figure out how to sell to more people, so they're trying to sell more services. Our strategy in Latin America will be to sell more services to more customers.

Q: Latin America is much smaller than China and India, though.

A: Both China and India have significantly more growth opportunities because of their size and [low] penetration. [That's one reason] we've tried to develop low-cost handsets, knowing that if the manufacturer developed them for us, clearly there will be a need in China and India.

Q: You're the only wireless operator offering refurbished handsets in the region, some that are as cheap as $9.95. Is that one reason you've grown in Nicaragua, where per-capita income is just $370 a year?

A: I wouldn't classify that as the main reason. We complement our customer service with refurbished handsets and the low-cost CDMA technology. We also brought to market the new low-cost handset [made for BellSouth by Taiwan's Compal] that we launched about a year ago [in Latin America]. It provides very simple functions, just talking and short messages, and we've got a chip set especially designed for us, for the low-end of the market.

We didn't realize when we first designed the set that because we made it very simple, it has a very long battery life compared to the gee-whiz handsets that have color screens and such. They also break down less because they have fewer features.

Q: Telecom tariffs are still pretty high in Latin America. A lot of people, especially young people, use text messaging, but even that can add up -- it's not cheap.

A: People really like the service, though, and they're using it. Our best country for SMS short messages is Ecuador. People in Ecuador are sending an unbelievable amount of SMS messages, which really surprised me. We're pricing it cheaply to encourage people to use short messages, and we've found it doesn't cannibalize voice.

In Ecuador, we have wireless Internet access -- you can exchange Internet messages, send text messages, or access the Internet through browsers. We'll roll out an integrated camera capability for Christmas. Those kids in Ecuador have every capability on their phone that a kid in the U.S. has.

Q: When will you have wireless Internet access throughout your Latin American countries?

A: By the end of this year, 9 out of the 10 countries we're in will have wireless Internet access. The only one remaining is Uruguay, where we have a trial system going with the next generation of high-speed wireless, capable of 700 to 800 kilobytes per second. We're very bullish on that, especially in Latin America where they don't have DSL capability in a lot of countries. This could be the solution, wireless DSL capability.